COLUMBUS, Ohio – During remarks at Corporate One Federal Credit Union’s Asset/Liability Management Conference held October 18 and 19 at the Hilton Columbus at Easton Hotel in Columbus, Ohio, Peter Duffy, associate director, Sandler O’Neill + Partners, L.P., noted that credit unions are generally overcapitalized and need to leverage their capital to grow and gain market share.
Citing an imbalance of supply and demand as a major problem for all financial institutions, but particularly credit unions, Duffy observed that increased consumer choice is driving loan yields down and share rates up, putting pressure on credit unions’ margins and earnings. He believes that continued consolidation in the financial services industry will reduce the imbalance and restore order in pricing power.
In light of this, what can credit unions do to become more competitive?
“Analyze your success versus local competition, not peer competition. Peer analysis doesn’t tell you how to build market share,” he said.
Duffy noted that competitive analyses conducted in many major metropolitan markets reveal that banks and credit unions are neck and neck in terms of yield on earning assets, cost of funds, and return on assets, but banks are pulling away on net interest margin. What differentiates the market leaders from their competition is their performance in areas of capital management, investments, and balance sheet management.
“Leverage your capital to enable growth. Aggressively market your loan offerings. Consider loan participations or purchase loans from other institutions. Manage your investment portfolio in a more aggressive manner. If a credit union can grow its balance sheet by making more loans and buying more investments, and do so without sacrificing earnings, it can translate that capital into growth,” Duffy said.
“Over the years, consultants have made thousands of dollars advising credit unions to stay short on the balance sheet to keep the regulator off their backs,” Duffy added. “The result? The regulator is off their backs on asset/liability management, while credit unions make less money than the competition, study their performance versus peers, and never figure out why they’re less financially competitive,” he said.
Corporate One’s Asset/Liability Management Conference, a two-day forum covering issues affecting credit unions’ balance sheets, featured speakers from the National Credit Union Administration (NCUA), Charlie Mac, and ALM First Financial Advisors, LLC.
Founded in 1988, Sandler O'Neill is a full-service investment banking firm dedicated to providing comprehensive, innovative advisory and transaction execution services to the financial industry. The firm specializes in strategic business planning, mergers and acquisitions, capital markets, mutual-to-stock conversions, investment portfolio and interest rate risk management, fixed income securities transactions and mortgage finance restructurings. Sandler O'Neill also is a market maker in hundreds of financial stocks and publishes equity and fixed income research focused on selected banks, thrifts and insurance companies, credit card companies, investment banks, asset managers, specialty finance companies, e-finance companies and transaction execution companies. Additional information about Sandler O'Neill can be found on the firm's Web site at www.sandleroneill.com.
Corporate One is a leading wholesale financial services provider to more than 800 of America’s credit unions. With more than $4.1 billion in assets under management, Corporate One offers correspondent services including ATM/debit cards, share draft imaging, and depository and electronic payment services to credit unions in Ohio, Indiana, Kentucky, and West Virginia, as well as investment solutions to credit unions across the United States. Corporate One also developed and manages Alliance One, one of the nation’s largest non-network-specific ATM selective-surcharging groups.